Feb growth in six core sectors dips to 4.5%

The growth rate of the six core industries slowed to 4.5 per cent in February from a healthy 9.4 per cent in January giving rise to some concern that the overall industrial growth rate may also come down.

The steel sector, which had clocked a 16.2 per cent growth rate in January, proved to be a major disappointment as it posted a flat growth of 0.9 per cent during February, according to official figures released on Friday. This was even lower than the 2.4 per cent growth recorded in February, 2009.

The cement sector which had also clocked double-digit growth in January slowed to 5.8 per cent, down from 8.3 per cent in February, 2009.

Electricity and crude oil performed better during the month to grow by 7.3 per cent and four per cent against 0.6 per cent and negative 6.2 per cent, respectively.

Coal production went up 6.8 per cent from six per cent last February. Petroleum refining recorded a 0.8 per cent growth.

There was some consolation in the fact that on a year-on-year basis the six core industries recorded a higher growth rate than the meagre 1.9 per cent in February, 2009.

During the April-February period, these key infrastructure industries together clocked a growth of 5.3 per cent, up from 2.9 per cent in the same period of the previous financial year.

As these sectors have a weight of 26.7 per cent in the index of industrial production (IIP), economists are of the view that the overall rate of industrial growth may come down from the robust growth rate of over 16 per cent clocked in December and January.

"Given these numbers, I think 'the IIP figures would come down and would be in the range of 10-11 per cent in the coming months," Crisil principal economist D.K. Joshi said.

HDFC Bank economist Jyotinder Kaur said, "We may see some kind of moderation in industrial growth... will finish the fiscal by 10 per cent growth in IIP." The captains of industry are worried over the withdrawal of the economic stimulus package as they fear that this would slow down growth.

Finance minister Pranab Mukherjee has already increased the excise duty on all products across the board in the budget, which has led to an increase in prices.

Similarly, the Reserve Bank of India (RBI) has also raised interest rates and sucked out liquidity to control inflation. However, industrialists fear that this would lead to a hardening of interest rates on loans for homes, cars and consumer durables.

Since the amount of money available in the economy has also been reduced this would mean that fewer loans would now be available, which in turn would result in a decline in demand and slow down in industrial production.

RBI has been maintaining that economic revival is now underway and inflation, which has begun to spread from food to agricultural goods, is a bigger cause for concern.

The finance minister has also made it clear that the huge fiscal deficit, which had resulted from the stimulus packages put in place to revive the economy, cannot be sustained indefinitely.

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